Commercial leases – be aware when operating a tenant break clause.

A recent case in the High Court has decided that internal partitioning is considered to be a chattel. This meant that when the tenant exercised its break clause it did not give vacant possession because it left the partitioning at the premises.

In this case, the landlord had opposed the tenant’s operation of the break clause saying it had not complied with the break clause conditions fully.

The High Court considered whether the tenant, which had exercised its break right, had complied with its obligation to give vacant possession. It decided that in leaving the partitioning it had not given vacant possession.

When the lease was originally granted, the premises were open plan. The tenant subsequently carried out various works, including the installation of partitions.

The High Court held that the partitions were chattels. It took into account:

That the partitions were standard demountable

The object and purpose of the annexation. The configuration of the partitioning was unique. It resulted in a series of small offices, which was to benefit the tenant rather than to afford a lasting improvement to the premises.

The court also stated that the partitioning substantially prevented or interfered with the landlord’s right of possession. This meant that the tenant had not given vacant possession.

This cases needs to be heeded when tenants are exercising break clauses. When the property market is slow and landlords are having difficulty in letting their premises, the exercise of a break clause mid way through the term has financial implications on the landlord.

This means that often landlords are searching for reasons not to accept the break. They do not want the lease to come to an end. If a break clause is not effective, then the lease continues as originally granted and the tenant will continue to pay rent under the lease until the end of the term (or the next break date if there is one).

Tenants usually want to break the lease for specific reasons – often financial, so the break being opposed and ineffective is a huge problem for them.

Most break clauses have some conditions attached to them. Usually these include:

paying the rent and other charges due under the lease,

serving notice within a specified time period,

complying with repairing obligations and other lease covenants, and

giving vacant possession the break date.

It is therefore important that all of these conditions are fully complied with to ensure the tenant can leave the property and terminate the lease on the break date.

Jordans Solicitors commercial property department can help you exercise your break clause to ensure that it is effective. We want you to be able to move out of your commercial premises when you want to.